Accused Fraudster Asks Hedge Funds To Pay Legal Bills

Jun 6 2011 | 12:13pm ET

Accused hedge fund fraudster Stanley Kowalewski has some hefty legal bills—and he wants his hedge funds to pay them.

Kowalewski has asked a federal judge in Atlanta for more than $1 million from his offshore funds to pay his legal bills through March and his future legal bills through September. The head of North Carolina-based SJK Investment Management is already accused of violating an asset freeze imposed in January to pay his lawyers.

The court-appointed receiver that disclosed the new documents is opposing Kowalewski's request.

"Kowalewski is seeking to do indirectly what this court already has prohibited him from doing directly—depleting the assets of the receiver estate and causing further losses to investors by taking investor money to pay his legal fees," Thomas Bosch, a lawyer for receiver S. Gregory Hays, wrote.

According to the Securities and Exchange Commission, Kowalewski misappropriated some $16.5 million of the $65 million he raised from investors, spending millions on himself and lying to investors about SJK's returns. According to the documents submitted by the receiver, Kowalewski is likely facing a criminal investigation as well as the SEC lawsuit.

That's a lawsuit he has little chance of winning, his lawyer told him February, according to the filing. Thomas Todd told Kowalewski that mounting a defense "may be difficult" and that any settlement is likely to be "onerous." Talks on a settlement have so far gone nowhere.

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